Online Economics 2020-2021

This course will introduce students to key techniques from economics and finance allowing them to understand the business decision making relevant to the petroleum industry and decommissioning.  Students will learn how these principles help explain how investment and disinvestment decisions (such as cessation of production) are taken, how oil markets operate, and the government's role in setting environmental regulations and taxation allowances. 

The energy and the financial sector relies heavily on analysis based on quantitative and empirical methodologies. This course develops a mathematical and statistical ‘toolbox’ for the participant, essential for the in-depth understanding of economic analysis. This course surveys some of the basic methods used to understand the underlying theories and empirical examples and tests found in these fields. 

The first part of the course covers basic mathematical models common across these fields. The second part of the course develops standard data analysis methods, including multivariate regression. Applications from various energy economic areas are used in order to illustrate the mathematical and statistical concepts.

The course will cover the main elements of Microeconomic Theory focusing on how they apply in the energy sector. The aim of the course is to provide students with an understanding of how economic entities, consumers and producers/firms, make choices. To do that, the content of the course will develop the participant's ability to apply core microeconomic principles and analytical methods in relation to relevant theory and model-based analysis. As well as to familiarise himself/herself with different methods of analysis adopted by economists through an awareness of the importance of model building and the choice of assumptions.

The course will focus on consumer theory,  examining how consumers make chooses, under the constraint of a budget, to generate demands. This theory could be extended to include choice under uncertainty and intertemporal choice. Producer theory will also be examined providing an understanding of how firms decide what and how much to produce. The demand and supply side will be drawn together to consider the different market structures and how they determine the price and quantity at which the good will be traded in the market. Other relevant topics, such as auctions and contract structure could be covered.

The energy and the financial sector relies heavily on analysis based on quantitative and empirical methodologies. This course develops a mathematical and statistical ‘toolbox’ for the participant, essential for the in-depth understanding of economic analysis. This course surveys some of the basic methods used to understand the underlying theories and empirical examples and tests found in these fields. 

The first part of the course covers basic mathematical models common across these fields. The second part of the course develops standard data analysis methods, including multivariate regression. Applications from various energy economic areas are used in order to illustrate the mathematical and statistical concepts.

The course will cover the main elements of Microeconomic Theory focusing on how they apply in the energy sector. The aim of the course is to provide students with an understanding of how economic entities, consumers and producers/firms, make choices. To do that, the content of the course will develop the participant's ability to apply core microeconomic principles and analytical methods in relation to relevant theory and model-based analysis. As well as to familiarise himself/herself with different methods of analysis adopted by economists through an awareness of the importance of model building and the choice of assumptions.

The course will focus on consumer theory,  examining how consumers make chooses, under the constraint of a budget, to generate demands. This theory could be extended to include choice under uncertainty and intertemporal choice. Producer theory will also be examined providing an understanding of how firms decide what and how much to produce. The demand and supply side will be drawn together to consider the different market structures and how they determine the price and quantity at which the good will be traded in the market. Other relevant topics, such as auctions and contract structure could be covered.

The course focuses on the procedures that firms use to make investment decisions. An important example is the decision about whether or not to proceed with a proposed project, and we will consider this example in some detail.

Decisions about projects and other investments are some of the most important decisions facing firms in the energy industry. 

The course is divided into four sections that focus on various aspects of economics and finance.

One section studies how decision makers in firms assess trade-offs over time.

An investment typically involves costs in order to obtain benefits in the future. But the future benefits, as well as any future costs, may occur at different times and in different amounts.

To take a very simple example, suppose that, by paying an amount I now, a firm can receive a cash flow of either 5 million pounds in five years or 10 million pounds in 8 years. How should a firm choose between two such investments?

A second section of the course studies the decision rules that firms use to compare investments. These decision rules involve comparing the patterns of present and future cash flows associated with various investments.

We will consider several types of commonly used decision rules. Our main focus will be on rules that involve net present value calculations, but we will also consider other decision criteria including the internal rate of return and the payback period. 

The third section consists of a number of workshops that will help you to construct Excel spreadsheets to implement the analysis of investment projects. These workshops provide a valuable complement to the more conceptual material in the course.

The fourth section of the course involves the question of risk and how the risk associated with an investment is factored into a firm’s decision about whether or not to make the investment.

How should risk be measured? How much should a firm be willing to pay to limit the risk associated with a project? How should the level of risk be incorporated into the decision rules that a firm uses to evaluate investments?  

These are some of the questions discussed in this section